Investing.com – Bank of America analysts say they have no tactical problem with blunting the U.S. dollar’s recent rally this week, citing multiple reversal signals and market dynamics.
The bank’s FX Quant Insight report highlights factors such as lower US Treasury yields, reduced demand for USD and a shortened trading week in the US.
“We feel comfortable tactically blunting the USD rally this week on trend reversal signals, lower US yields and the US holiday,” BofA wrote.
It is said that the dollar’s strength so far has been mainly driven by trading sessions in the US and Asia.
However, the bank’s analysts expect muted activity during US trading hours this week due to Thanksgiving, which could dampen the momentum behind the dollar’s gains.
A key signal in the report is BofA’s bullish view on , identifying it as the best currency pair to reduce USD strength.
“Our quantitative framework is bullish NZD/USD this week thanks to the flow of NZD call options and the spot trend reversal signal,” the analysts noted.
An improved NZD valuation is said to increase attractiveness, although BofA notes risks remain, such as a more dovish-than-expected Reserve Bank of New Zealand (RBNZ) meeting.
Furthermore, the bank’s technical models show upside reversal signals for the USD against the New Zealand dollar, British pound and Swedish krona.
For GBP bulls, the bank said it would position for a lower structure as “option demand for EUR calls remains subdued and trend analysis shows several downside continuation signals for EUR pairs.”
A 7 basis point decline in 10-year US Treasury yields, driven by the appointment of Treasury Secretary Bessent, further supports a bearish USD view.
“Bessent has advocated a more gradual rollout and a more transactional nature of rate policy, reducing the bullish USD risk premium,” BofA wrote.
